3 August 2012
“If you understood what I just said, I must have misspoken.” It was easy to laugh at the quip by former US Federal Reserve Chairman Alan Greenspan at a time when financial markets were booming, but now that we are plumbing the depths of the debt crisis, a bit more clarity from eurozone leaders would be much appreciated. On 26 July, the European Central Bank President vowed that “the ECB is ready to do whatever it takes to save the euro.” On 2 August, following a meeting of the ECB board of governors, Mario Draghi declared that his institution could intervene on markets to buy up Spanish and Italian debt, but not immediately and not directly. Before his press conference was over European markets went into a slump and interest rates on Italian and Spanish bonds had once again risen to record levels – precisely the opposite of the response to his statement of the previous week. On 3 August, the markets had turned around and were back on the rise. Economists and political leaders are in the habit of explaining that the crisis cannot be rapidly resolved and that it is important to exercise caution in initiatives and statements that may affect it. If the markets react badly, the slightest blunder could end up costing a sovereign state several billion euros. However, we have now reached a juncture where these selfsame markets no longer seem to understand how to interpret the decisions of the most senior custodians of the European economy. Of course, the irrationality of the markets is a well-recognised phenomenon, and one that can often be rationally explained by the short-term interests of investors. But when Mario Draghi implicitly called on Spain and Italy to demand a bailout from the European Financial Stability Facility (EFSF) ahead of any assistance from the ECB – something that Madrid and Rome have refused to do – the government leaders of both these countries welcomed his remarks. What it all means is anybody’s guess. Except if you grasp that a long-term chess game is being played out between Draghi, Europe’s political leaders the all-powerful German central bank, the Bundesbank. And it is a chess game that is far from comprehensible for ordinary Europeans. The stakes are high, because the outcome of this game will determine the eurozone’s economic and monetary policy for years to come. So naturally there should be a debate between Europe’s political and economic leaders. Having embarked on a difficult path, Mario Draghi appears to be making progress towards his goal: to help countries in difficulty so as to preserve the euro, while reassuring the markets and limiting the influence of the Bundesbank. In the days that preceded the ECB board meeting, journalists and bloggers struggled to interpret the information emanating from various institutions in Europe and the questions that it posed: Who is saying what? What does it mean? Why are they saying it now? Who is being manipulated? The debate and its exegesis appear to be the preserve of a number of highly trained specialists, who are in many ways reminiscent of the Kremlinologists who analysed what went on in Moscow during the Cold War – a comparison that is far from reassuring.